Why credit unions need to think about financial counseling
Roy Bergengren once said, “The most important service of the credit union is the education of its members in the management and control of their own money.” Indeed, the most important way credit unions differ from other financial institutions is in terms of the education provided to its members. Larger financial institutions may try to “educate” their customers, but mainly with the goal of selling them a product. Credit unions, on the other hand, provide financial counseling to help their members achieve financial independence by providing them the tools they need to gain control of their finances.
According to this report published by the FINRA Investor Education Foundation, two out of three U.S. adults “lack financial literacy” and only 37% of Americans could pass a basic economic/financial knowledge test. The FINRA Foundation National Financial Capability Study revealed that 63% of the participants scored 3 out of 5 or lower on a financial literacy test that covered topics such as interest rates, inflation, bond prices, mortgage interest and investment risk. This lack of financial literacy was reflected in other findings presented in the study. It was found that 18% of the respondents spend more than they earn, 21% have overdue medical bills, 26% have used non-bank borrowing (such as high-interest payday loans or pawn shop loans), 32% only pay the minimum due on their credit cards and 9% are underwater on their home mortgage. In addition, less than half of the respondents (46%) have a “rainy day” fund set aside for financial emergencies, and only 35% perform research or compare offers when shopping for credit cards. (1)
Credit unions make a difference in the financial world with their counseling services. These services are not an expensive venture, although it can take some time. Credit unions have historically focused on helping their members save, borrow and receive affordable financial services. Providing financial counseling can be as beneficial as providing affordable loans to credit union members.
A study published by the FDIC Federal Deposit Insurance Corporation explicitly demonstrated that providing financial counseling to consumers may highly impact the behavior of the consumers and lead to positive debt reduction (2). By providing financial counseling, credit unions can have the capacity to know more about their members, which can increase their loyalty to their institution.
Having counseling sessions about first-time homebuying, predatory lending, budget, foreclosure prevention and principles of banking may help to change the financial future of many Americans. As doctors usually recommend an annual check-up, credit unions must encourage their members to participate in annual counseling sessions to make sure that their credit score and personal finances are aligned with their financial goals. Educating members in simple matters such as comparing rates on credit cards, car loans, and even fees on different accounts may help them save money in the long run.
There are two ways in which a credit union may offer financial counseling. The first is by getting a certificate through CUNA Financial Counseling Certification Program (FiCEP) with the choice of eSchools, the self-study print, and PDF courses. Using this path, a credit union employee can gain a comprehensive education of credit union financial counseling and earn a Certified Credit Union Financial Counselor (CCUFC) designation upon the completion of an exam. The second option consists of partnering with a local organization that offers this service. In this case, the credit union will have the opportunity to increase engagement with the community.
Credit unions exist to further community development and provide financial social services. Let them not forget what John F. Kildulff once asserted: “No, a credit union doesn’t exist to give away its assets as a charitable offering. Yes, yes and triple yes, a credit union has always existed and continues to exist for one primary reason, to serve its members, the owners of the credit union…. Not for profit, not for charity, but for service.”
- FINRA Investor Education Foundation. “U.S. Survey Data at a Glance”; National Financial Capability Study; July 2016. usfinancialcapability.org/results.php?region=US
- FDIC Federal Deposit Insurance Corporation: The Impact of Credit Counseling on Consumer Outcomes: Evidence from a National Demonstration Program;2016. https://www.fdic.gov/news/conferences/consumersymposium/2016/documents/roll_paper.pdf